Chapter 2

Now money-making and money values occupy a special place in business enterprise, due to the fact that on economic principles such money value becomes the best test--perhaps the only true test--of the workableness and success of business efforts. In the complicated activities of the world's work, where each man, each undertaking, each business unit, respectively, is striving primarily for its own advantage, how is it, among all this pulling and pushing, this competition, that the social income is distributed so nearly in accordance with the individual contribution? Even if we admit that many persons fail to get a fair share, that there is gross inequality here and there, still after all, a student of mankind's activities in production, distribution, and consumption must marvel at the extent to which the rewards approximate the value of contribution. Now this is made possible by money considered as a measure of relative values, by the standard or test of fitness embodied in the thought, Will it pay, and to what extent will it pay? If I have in mind some new invention that will perhaps confer benefits on mankind, the best test of its practicability and utility will be, Will it pay, will people buy it, pay money for it? If an improvement in process is proposed, the question is, Will it pay? If the young man starts out in life with high ideals and a reasonably good opinion of his own abilities, an opinion fostered perhaps by fond parents and admiring friends, the question is, Will these abilities fit in with the world's needs? Will they supply a real demand, will they be serviceable? The best means of ascertaining this, although it may be only a rough estimate and although errors occasionally creep in is, will they pay? Can he sell these services for real money? This criterion is practically omnipresent in the world of affairs. It is based on economic necessity, and although here and there it may be charged with cruelties, with serious blunders, it is, on the whole, a remarkably accurate standard. We see this more clearly where we attempt to substitute some other criterion for ranking the soldiers in the battle of life. We can note, for instance, the inferior type and character, generally speaking, of men elected to office by the suffrages of their fellow citizens, compared with men who reach positions of authority in business and other enterprises through the pressure of these economic principles. Again, consider the nation that has attempted to improve on economic distribution of power by evolving a government which places the power in the hands of those best fitted to govern, a ruling class which aims directly at efficiency, a select class but necessarily self-selected, thus supplanting an economic régime by a military régime--successful truly in certain forms of economic efficiency through a more rigid and compact organization, but destructive of the initiative, the evolutionary growth, the fundamental development, the liberties of the people. Contrast this with the freedom, happiness, and progress of a nation of shop-keepers. Now this economic régime, with its individual instances of cruelty, like the cruelties of nature, does on the whole tend to develop men, to require their best efforts, to make them come forward and upward. Thus, in this interplay of economic forces, wealth, or money, or profits stands out as a primary object of attainment, and becomes the incentive to the complex efforts which tend to benefit the individual, the community, and the nation.

The business enterprise then directs its attention to profits, because, from mere economic necessity, profits are the criterion of the true success of the enterprise, that is, its serviceability to mankind. Here we distinguish between the shortsighted man, who aims at immediate returns, and the farsighted man, whose eye is fixed on the future, who verily desires the profits, but desires them in the long run. But this is only a manifestation of human nature as we find it in every field. We always note a deficiency in the man whose life is lived for the present, for immediate enjoyment: in him we see the typical pleasure-seeker, peculiarly prone to temptation, to break the rules of life, to indulge himself at the expense of others or of his own future. He is characteristically the weakling, the wrongdoer. And we contrast him with the man of character, who stands superior to an immediate environment, who will not disregard the distant future, the absent neighbor, the invisible God. And so in the economic world it is the whole life period which is to be regarded when aims are chosen. Profits as a goal for the long run do not antagonize moral principles. "Honesty is the best policy" and "Do unto others as you would have others do unto you" are maxims of good business; and that economic principles do not conflict with them is shown by the fact that they tend towards profits in the long run. This is not to assert that mankind in business is perfect. In every period of economic advance into a new environment, men try new experiments, as during the development of the great modern corporation in the period following the Civil War in this country and, earlier than that, in the era of railroad building. They have tried new experiments in ethics as they have in physics, in chemistry, in economics. They have attempted to replace honesty by camouflage, the golden rule by self-aggrandizement. But these attempts are not successful and so they become discredited; they do not work because inherently they cannot last, and inability to endure is fatal to the purposes of any economic undertaking. We are emphasizing the fact that business is necessarily conducted for the long run, the very nature of success implying permanence. A man may take some criminal advantage of an opportunity: he may abscond with money entrusted to him; he may abuse the confidence reposed in him by an employer, by a customer; he may obtain an immediate profit by misrepresentation. But no one could expect such things to last; he could not possibly be building an enduring structure; such a course could not in the end promise him profits, or any other kind of success. A properly conducted business enterprise then is concerned with making profits in the long run; that is to say, in accordance with accepted notions of business conduct; in short, according to rules of the game, and this involves conformity with a standard, a standard of giving good value for what one gets.

We must next distinguish between gross profits and net profits. The merchant or manufacturer naturally desires to do a large business, he points with pride to the increase in his sales this year over last year. The larger his turnover the smaller the proportionate amount of his overhead expenses that must be borne per unit of product, and other economies follow large-scale production or distribution. He may occasionally be desirous of increasing his output even when it entails a disproportionate increase in his expenditures, with the idea that he can later occupy himself with reducing these expenses and in the meanwhile the goodwill of his enterprise will have gained from the larger circle of customers. Such is the case with a new enterprise that often starts out with the expectation of little or no profits during its early years, when it is gathering a clientèle and learning to distribute its product with economy. All these, however, are special cases. The normal situation is that the business enterprise is aiming at net profits, having an interest in large sales, heavy transactions and gross profits only so far as these are expected to lead finally to net profits, the real goal. Now these net profits are, of course, the remainder of earnings left on hand after providing for all costs and expenses, for depreciation and every other factor causing loss, destruction, and deterioration during the business period under consideration. In short, the business capital as it was at the beginning of the period is first fully restored and made intact at the end of the period before a net profit emerges. This net profit therefore becomes in a true sense a creation of new capital and may indeed be retained in the business as an addition to capital funds. Even when it is paid out in dividends, partly or wholly, it becomes new capital in the hands of the individual stockholders who then in their private capacity may of course spend it, but by proper investment may keep it permanently stored as capital. It is the creation of capital then, that is in reality the ultimate money-making aim of the business enterprise.

We can now summarize the attitude and policy of the typical business man in his money-making aim as follows:

In seeking profits he is actuated by economic necessity.

His goal is profits in the long run, which involves conformity with economic and ethical standards, and net profits, which implies the creation of capital.

The creation of capital we cannot fail to recognize as a worthy aim. It has given mankind much of all that mankind possesses and constitutes the foundation upon which civilization largely rests. The advancement in the arts and sciences has been in no small degree stimulated by the demands of business enterprise for new methods of creating capital and we may believe that should the time arrive when this motive should fail, when men should grow to be indifferent in their attitude towards profits, the ensuing stagnation would affect every department of human endeavor. Of this we may be assured even when we remember that money-making, and what goes with it, is not the only aim in life.

After cataloguing so much that is virtuous in the pursuit of money-making the suggestion is inevitable that there must be some other side to it, that the common views of the rapacity of the money-maker cannot be wholly unfounded. What then are the vices of the money-making aim? In examining this question we shall first brush aside some things to which we have already referred. The pathological cases of mere crime, of sharp practice, of taking advantage of others, while mounting up into distressingly high figures considered absolutely, are much less important relatively; that is, they are infrequent and scarce enough to avoid obscuring the rule which they violate, the rule that honesty is indispensable in economics as well as in ethics. What we must now investigate is any vicious tendencies that may be found in the money-making aim when followed normally and according to its own accepted principles. Of such degenerative tendencies we seem to find two: first, the tendency to that excess which becomes a vice; and second, the tendency to a disregard of other considerations in life through too exclusive a devotion to acquisitiveness. But upon further thought we must see that these two tendencies flow together and become one, for too much devotion to money-getting and too little attention to the other purposes of life are, after all, expressions of the same thing. Perhaps a man may err in excessive devotion to any object of life but we must admit that in the pursuit of gain the evil tendency to exaggerated absorption in the one aim is promoted through a coöperation with his natural selfishness. Of all the fields of human endeavor, here is one that peculiarly fits in with self-seeking, with disregard for others, which may drag a man downward, making him small and mean, unhappy and uncharitable, while apparently attaining the goal at which he has aimed. Not every man, while concentrating upon money-making, is consciously seeking his country's welfare, the amelioration of life for the many, the uplift of posterity, even if he rigidly adheres to the accepted rules of the game, to the code of business honor. This brings us back to the popular picture of the money-maker, grasping, sordid, narrow-minded. There are such people. I believe them to be rare, but whether there are many of them to-day or not, it is a type tending to disappear in the environment of modern business which offers its inducements and rewards to him who does, who becomes, who renders service, not to the sordid seeker for gain. Barring an occasional exception, such an exclusive aim is not that of the man of large affairs, the business leader, the conspicuously successful man. It is not Harriman, nor Edison, nor Weinstock, nor Marshall Field, nor Peabody, nor is it the heads of our big corporations of to-day. Such men are money-makers, creators of capital, builders of large enterprise, but their aim at profits while genuine is only incidental to their main purpose of doing, of becoming better able to achieve, of rendering service. When the beginner in business approaches an experienced friend for advice, he is told to work as hard and as faithfully as possible, to study his business, to seek to improve himself--in other words, to concentrate his whole strength on the giving of service, for his wages or salary will take care of itself. The experienced man knows well that this holds just as truly for all ranks in the business world and that the higher one ascends in responsibilities, the more he must give and do; indeed the leading positions in the business world are occupied by men who produce tremendously, whose value to themselves and others lies in what they accomplish, and this--not what they get--is the criterion of success among men of experience, among those in charge of enterprises, who are on the lookout for leaders of this type.

Here we have the remedy for the tendency backed by natural selfishness towards undue devotion to gain: such narrowness simply does not work, it is crowded out by competition with the superior efficiency of broader motives. And while, here and there, the type continues to exist, its development in new cases is discouraged by every instance illustrating the relative success--in all senses--attained by those who make it their chief aim to produce, to render service. Just as the physician bestows his first thought upon his patient, these superior business men give first consideration to their profession, for so they regard it, and this tends to assure their success, just as it does that of the physician, and to become the standardized ideal for lesser men.

It is indeed clearly self-evident that on many accounts the man in business must give attention primarily to the service he is trying to render. The clerk in the store must devote himself mainly to his customers, to his merchandise, to his other duties, not to his salary. And so with the department manager, and so with the general manager, whether of a store, a railroad company, or other activity; the immediate daily problem for all lies in the rendering of a service, the producing of a commodity, or the doing of the thing for which the business enterprise exists. This concentration upon output is furthermore required by competition which whips the producer into line and often makes it a matter of business life and death that one should make progress in method and quality. That his shoes wear is a matter of pride to the shoe manufacturer. "Blank tires are good tires" is not to be regarded as merely a boastful advertisement. If it was it would not pay the advertising cost.

Money-making as an aim thus becomes subsidiary to the characteristic activities of the enterprise, it is in a sense a by-product. But the money-making aim is there, although perhaps in the background. It is furnishing the power under which the enterprise operates. More than that, it is the gauge indicating the prosperity or lack of prosperity of the enterprise, its progress, its fitting in with the needs of life. In short, the money-making aim spurs on the business enterprise, just as the weekly or monthly pay spurs on the humble worker; but in each case the main attention is given, and necessarily given, to the work to be performed.

Let us now consider some of the implications of this concentration on rendering service. The directed effort of each man to the production of the utility characteristic of his business, tends to result in his learning to conduct that specific activity with a high degree of skill, and with an increasingly valuable fund of experience. So highly specialized does he become that it will be quite impossible for any one hitherto a stranger in that sphere to conduct it as well. Therefore in an age of coördinated effort the more a man has of accumulated knowledge and facility in handling a certain kind of affair and the better fitted, therefore, he is to continue and to progress along that line, the less relatively he is able to undertake the affairs of some other kind with which he is not familiar. We commonly feel free to criticize a railroad, a newspaper, a large business house, perhaps a university, with which we may have casual contact, but the fact is there are few competent critics outside of the ranks of the enterprise itself or of those carrying on activities that are directly similar. In a word, through this focusing of attention, a man will come to be exhaustively familiar with his own occupation, while possessing a merely superficial acquaintance with the theories, customs, and responsibilities of those of others. The wise man therefore argues the necessity of confining himself to the field in which he has become expert and will avoid taking chances in some outside direction wherein he is not familiar. One of the most common and disheartening experiences in the money-making and money-saving of the thrifty is that after having both worked hard and practiced self-restraint, the resultant savings are often put into some enterprise that turns out badly, and the whole effort is thus thrown away. Generally this happens because he has violated the rule we have just stated; he has ventured his savings in unfamiliar fields, ignorantly he has rushed in where the better informed would have feared to tread. Such so-called investments are in reality highly speculative. They involve risks which are unknown and altogether to be avoided. Now no one speculates in his own legitimate business, for there he is acquainted with the hazards which, he has learned, require the best of knowledge and the greatest of prudence. It is the allurement of the unknown that tempts him to seek unearned profits through speculation in outside regions where, in the nature of the case, the chances must be against him. Now speculation has its proper place in business: there are certain inherent hazards that must be undertaken, mainly to be found in the risk of the seasons in the production of crops, and the risk of the future in undeveloped enterprise. These risks must be carried by somebody, but clearly they constitute an activity for specialists who study conditions, becoming relatively expert in determining how and when to act. These specialists are drawn principally from two classes: First, the professional speculator, who knows his markets and makes a business of buying and selling future risks; such men perform a great service in handling our seasonal crops and in other directions, and are entitled to a reasonable profit. Second, the man of wealth who may use part of his surplus in the risks of undeveloped enterprise; although it is probable that in the end his losses and expenses will outweigh his gains, he can afford to take chances of such experiments in the hope that success will follow in some of them; furthermore, he can regard the outlay as a contribution to the advancement of mankind. For the rest of us, however, outside of these two classes, it is our business to keep away from speculation whether in oil wells, flying machines, in new factories, or in real estate: in the long run, we cannot get something for nothing and money-making efforts that are ethically valid thus coincide with those that are selfishly desirable, namely, the efforts to obtain the payment, the profit, that arises from a valuable service performed or commodity produced. Too often men who follow this rule in their regular occupation depart from it in the use of their saved surplus funds. They feel that their savings ought to make them money, as they say.

Now savings can be employed in one of three ways: They may be used as capital by the owner; or they may be put out in investments--that is, used or utilized as capital in the business of another; or, third, they may be wasted in gambling or speculation. As a matter of course, the employment as additional capital in one's own enterprise is generally the most desirable wherever applicable, but this is a use of limited scope, relating to but few of the people engaged in productive activity who earn and save a surplus. The main resource for such accumulations is in safe investments, in the bonds and securities of our own country and those of well established enterprises. Not many among our embryo capitalists possess the experience or skill requisite for the safe and proper investment of their funds, they must rely upon the advice of others. But whom can they trust? The demand for investment advice has not failed to call forth a supply of advisers, and elaborate are the schemes designed to lure the unwary. But, generally speaking, the man who falls into the clutches of these birds of prey has himself to blame, for the reason that the temptations they offer are appeals to the illegitimate desire to get something for nothing or to the foolish notion that one can get-rich-quick in some way whispered about by a stranger, and out of sheer benevolence. The fact is that the wise man will dismiss all thought of making money out of his investments; he will seek only the moderate return which alone is consistent with safety; and with this policy, will turn a deaf ear to any so-called opportunity which promises big profits. We can summarize the matter by saying that concentration upon one's business and service implies that one should not attempt to make money elsewhere.